How to Stay Compliant with AML Laws in Canada in 2025

Canada has been continuously working to develop an efficient Anti-Money Laundering (AML) system. Being one of the founding countries of the Financial Action Task Force (FATF), Canada follows the recommendations provided by the organization. However, the results of the FATF’s 2016 evaluation have shown that the country has several deficiencies. As a result, the government amended regulations to strengthen AML/CFT requirements. In October 2021, the FATF re-evaluated the country, pointing to visible changes and improvements in tackling money laundering.

From 2016 to 2021, Canada reversed most of its deficient indexes. This means that the regulatory environment in Canada is fast developing, and entities working in this jurisdiction need to keep up. In 2025-2026, Canada is likely to have a mutual evaluation by FATF to assess Canada’s compliance with AML/CTF frameworks.

Failure to comply with Canadian regulations can lead to all sorts of penalties. For instance, in November 2024, the Exchange Bank of Canada was fined C$3,538,724 ($2,457,750) over compliance.

We at Sumsub have prepared an article explaining how companies working in Canada can stay compliant with changing regulations.

Who needs to comply with AML regulations in Canada?

Entities obligated to follow Canadian AML law and report to FINTRAC (the Financial Transactions and Reports Analysis Centre of Canada) include:

• Financial institutions (banks, credit firms, etc.)
• Money Service Businesses (crypto companies, forex, etc.)
• Insurance companies
• Real estate businesses
• Casinos and gaming establishments
• Security dealers
• Law firms and accounting firms (when managing client funds, securities, and real estate transactions)
• Agents of the crown
• British Columbia notaries
• Dealers in precious metals and stones
• Payment processors or e-commerce platforms handling financial transactions, such as those involved in age-regulated sales (e.g., cannabis or alcohol), if classified as MSBs.

Notably, certain non-Canadian businesses must also comply with the country’s new AML requirements. These are so-called foreign Money Service Businesses—that is, foreign companies that have a place of business in Canada. This can be an offshore crypto platform that advertises to and onboards Canadian users.

Who are the regulators?

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) is the main AML regulator in Canada. It was established in 2000 as per the Proceeds of Crime Act. Its goal is to detect, investigate, and confront any money laundering activity. Entities must, therefore, submit reports related toAML to FINTRAC, which analyzes them and cooperates with other law enforcement institutions (e.g., police) to resolve the cases.

Office of the Superintendent of Financial Institutions (OSFI) supervises federally regulated financial institutions to ensure their solvency and compliance with regulations.

Canadian Securities Administrators (CSA) is an umbrella organization of provincial and territorial securities regulators that coordinates the regulation of Canadian capital markets.

To maximize the efficiency of its investigations, the Canadian government has proposed creating two additional organizations: The Financial Crime Coordination Centre and The Canadian Financial Crime Agency, though these entities are not yet fully operational as of March 2025.

The Role of FINTRAC in AML Compliance

FINTRAC enforces compliance with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and makes sure that businesses fulfill their reporting and monitoring obligations. Its key responsibilities involve the following:

• Monitoring compliance. This step involves conducting audits and assessments of reporting entities and ensuring that companies adhere to AML and KYC regulations.
• Imposing penalties. FINTRAC can issue administrative monetary penalties (AMPs) for non-compliance, with fines reaching up to C$20 million for companies and C$4 million for individuals as per the 2024 amendments.
• Receiving and analyzing reports. This includes processing suspicious transaction reports (STRs), large cash transaction reports (LCTRs), and terrorist property reports (TPRs) from businesses and financial institutions.
• Sharing financial intelligence. FINTRAC works with law enforcement agencies, the Canada Revenue Agency (CRA), and the Canadian Security Intelligence Service (CSIS) to combat financial crimes.
• Regulating Virtual Asset Service Providers (VASPs). It enforces AML rules on cryptocurrency exchanges and other digital asset firms.

What are the AML regulations in Canada?

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) is the main AML regulation in Canada. The law was implemented in 2000 and amended several times, with the latest changes proposed in December 2024. In general, the main goal of PCMLTFA is to establish an efficient set of requirements for:

• Customer identification and verification
• Recordkeeping
• Monitoring
• Reporting

Canada also has beneficial ownership transparency rules under the Canada Business Corporations Act (CBCA) amendments, effective January 2024. Businesses must maintain a register of individuals with significant control (ISCs) and report to FINTRAC if discrepancies are found, as per PCMLTFA Section 9.6(2).

How AML Compliance Works in Canada

Canada has strict compliance program requirements in place—all reporting entities have to establish and implement a compliance program that adheres to the PCMLTFA and its regulations.

To stay compliant with Canadian AML law, companies have to implement a clear set of procedures. This includes at least the following:

• Appointing a Money Laundering Reporting Officer (MLRO)
• Staff training
• Risk assessment
• Conducting Customer Due Diligence (CDD), Simplified Due Diligence (SDD) and Enhanced Due Diligence (EDD) 
• Screening for persons on sanction lists, Politically Exposed Persons (PEPs) lists
• Transaction monitoring
• Ongoing monitoring of customer behavior and transactions
• Recordkeeping for at least five years from the date of the end of a business relationship or final transaction
• Reporting suspicious activity
• Having a comprehensive compliance policy in place

When it comes to identity verification, Canada provides companies with several options to ensure the authenticity of clients.

Government-issued photo identification 

The first option is the government-issued photo identification method, wherecompanies must record the following information:

• Name
• Date of verification
• Type of document
• ID number
• The country of issuance
• Expiration date

Credit file 

Using the credit file method, companies have to obtain a client’s credit file either directly from the Canadian credit bureau or a service provider. The information that companies have to collect includes:

• Name
• Credit file number
• Name of the bureau or service provider that has the file
• Date when the business’s employee consulted the file

Dual-process 

When using the dual-process method, companies access information from two different agencies (e.g., bureau and bank). 

Penalties for Non-Compliance with AML Regulations in Canada

Fines for AML record-keeping violations in Canada range from just one Canadian dollar to C$500,000 (approximately US$375,000) per violation. The exact amount depends on the degree of the breach. For instance, before December 2024, a one-time failure to report a large transaction could cost businesses up to C$1,000 (around US$800/€680), while repeat violations of record-keeping obligations could result in fines of up to C$500,000.

In December 2024, the Canadian government proposed significant amendments to the PCMLTFA. These changes were made to improve the enforcement capabilities of the FINTRAC by increasing penalties for non-compliance. In particular, the proposed amendments include a 40-fold increase in penalties and introduce criminal offenses for false reporting by reporting entities. The maximum penalties could reach up to C$4 million for individuals and C$20 million for companies per violation notice.

KYC vs. AML: What’s the Difference?

While Know Your Customer (KYC) and Anti-Money Laundering (AML) are closely related, they have distinct roles in compliance. KYC is a component of AML that focuses on verifying customer identities, while AML includes broader measures for preventing financial crimes like money laundering and terrorist financing.

Aspect	Know Your Customer (KYC)	AML (Anti-Money Laundering)
Scope	A subset of AML that focuses on identity verification.	A broad regulatory framework that helps prevent financial crimes.
Purpose	Ensures businesses verify and understand their customers.	Prevents money laundering, terrorist financing, and fraud.
Process	Involves ID verification, risk assessment, and due diligence.	Includes KYC, transaction monitoring, suspicious activity reporting, and enforcement.
Regulatory requirement	It is mandatory for financial institutions, crypto exchanges, and certain high-risk businesses.	It’s required across multiple industries that handle financial transactions.
Timing	Conducted during customer onboarding and updated periodically.	Ongoing process involving continuous monitoring and compliance measures.
Key components	Customer Identification Program (CIP), Customer Due Diligence (CDD), and Enhanced Due Diligence (EDD).	Transaction monitoring, STRs (Suspicious Transaction Reports), regulatory reporting, and internal audits.
Enforcement bodies	Overseen by regulatory agencies (such as FINTRAC in Canada).	Enforced by government bodies and financial intelligence units worldwide.

Suggested read: All You Need to Know About Remote Verification in Canada

Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD)

Financial institutions and regulated businesses have to assess the risk levels of their customers through Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD). These processes help ward off financial crimes by using proper identity verification and risk management.

Customer Due Diligence (CDD)—standard verification

CDD is required for all customers and involves basic identity verification and risk assessment. It includes:

• Identity verification. Collecting and verifying government-issued ID, proof of address, and other relevant documents.
• Customer risk profiling. Assessing customer activities, transaction history, and business relationships.
• Sanctions and PEP screening. Checking if the customer appears on sanctions lists or is a Politically Exposed Person (PEP).
• Ongoing monitoring. Periodic review of transactions to detect and prevent suspicious activity.

Enhanced Due Diligence (EDD)—high-risk customers

EDD is required for customers with a higher risk of money laundering or terrorist financing. This includes politically exposed persons (PEPs), those from high-risk jurisdictions, or the ones with large and complex transactions. EDD measures include:

• In-depth identity verification. Additional documents, such as multiple government-issued IDs or notarized verification.
• Source of funds & wealth verification. Customers must provide detailed proof of income, business ownership, or asset sources.
• Transaction Monitoring. Real-time tracking of high-value or unusual transactions.
• Senior management approval. High-risk customers require approval from compliance officers or senior management.
• Frequent reviews. Instead of periodic checks, high-risk customers undergo continuous due diligence and risk reassessments.

How AI and Automation Are Changing AML Compliance

Artificial intelligence and automation are changing AML compliance by improving fraud detection, reducing false positives, and enhancing regulatory reporting. Financial institutions and regulators are using AI-driven solutions more and more in order to detect suspicious activities more effectively. These are some of the AI-driven fraud detection methods in use:

• Machine learning for pattern recognition. AI models can analyze huge transaction datasets to identify unusual behavior that might indicate money laundering, like in the case of Banco Santander using ThetaRay to detect money laundering.
• Real-time transaction monitoring. AI-powered systems flag suspicious transactions instantly, which helps with faster investigation and response. Nasdaq acquired Verafin, an AI-driven financial crime management platform, to make real-time fraud detection and AML compliance for its banking clients stronger.
• Behavioral analytics. AI detects anomalies easily by comparing a customer’s transactions to their usual patterns, which increases the effectiveness of risk assessment. Visa invested $12 billion in AI and automation to fight scams, including deploying dedicated intelligence teams to study the dark web and social media, preventing over $350 million from being lost in fraud.
• Natural Language Processing (NLP) for KYC verification. AI can automate document screening, ID verification, and adverse media checks for faster onboarding.
• Network analysis for suspicious connections. Artificial intelligence is able to map out financial relationships to find hidden links between money laundering entities.
• Reducing false positives with adaptive algorithms. Machine learning refines detection models over time, which decreases unnecessary compliance alerts.
• Automated regulatory reporting. AI optimizes Suspicious Transaction Reports (STRs) and other compliance filings, making them more accurate and efficient.
• Fraud risk scoring. AI assigns dynamic risk scores to customers and transactions and makes due diligence more precise.

Suggested reading: The Three Stages of Money Laundering and How Money Laundering Impacts Business

Future of AML Regulations in Canada

Canada is actively building up its Anti-Money Laundering (AML) regulations to strengthen financial oversight and fight financial crimes. These are some of the expected regulatory updates:

• Increased penalties. Proposed amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) strive to significantly raise penalties for non-compliance, with fines for companies potentially reaching up to C$20 million per violation. 

• Enhanced powers for FINTRAC. The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) is expected to get expanded authority, with the ability to issue compliance orders and coordinate better with other federal agencies overseeing the financial sector. 

• Introducing the compliance scorecard. FINTRAC plans to implement a scorecard system, potentially with the help of artificial intelligence, to give out real-time feedback to financial institutions and businesses, which would improve their monitoring capabilities. 
  
• Preparing for the FATF assessment. Canada is preparing for an evaluation by the Financial Action Task Force (FATF) scheduled for 2025-2026, which could prompt further regulatory adjustments to meet international AML standards.

• What are the biggest AML risks for businesses in Canada?

  1. Large cash transactions and unverified payment methods. 2. Dealing with high-risk clients, such as Politically Exposed Persons (PEPs). 3. Transactions involving high-risk jurisdictions with weak AML controls. 4. Structuring transactions to avoid reporting thresholds. 5. Use of shell companies or complex ownership structures.

• How can businesses prevent money laundering activities?

  There are a number of ways businesses can deter money launderers: 1. Implement robust KYC and due diligence procedures. 2. Conduct ongoing transaction monitoring and risk assessments. 3. Report suspicious transactions to FINTRAC. 4. Train employees on AML compliance best practices. 5. Regularly update AML policies to meet regulatory changes.

• How often should AML compliance programs be updated?

  AML compliance programs should be updated at least annually or whenever there are regulatory changes or emerging risks.

• What are the red flags for suspicious transactions under AML laws?

  Certain transaction patterns can trigger AML checks. These include: 1. Large, unusual cash deposits or withdrawals. 2. Transactions just below reporting thresholds. 3. Sudden changes in a customer’s transaction behavior. 4. Involvement of offshore accounts or high-risk jurisdictions. 5 Use of multiple accounts to move money in a structured manner.

• How does FINTRAC monitor and enforce AML compliance?

  FINTRAC enforces AML compliance through mandatory reporting, risk-based audits, and penalties for non-compliance, making sure that businesses follow regulatory guidelines. It also uses AI-driven analytics and cross-agency collaboration to monitor transactions.